What to expect from Oracle’s (NYSE:ORCL) Earnings Report

NEW YORK – Oracle (NYSE:ORCL) is scheduled to announce results for its fiscal first quarter of 2014 this Wednesday after trading and analysts are split on whether the company will make or miss expectations. Oracle has missed consensus revenue expectations for two consecutive quarters, and the current consensus of $ 8.48 billion would represent 4 percent year-on-year growth.

Over the second half of the company’s fiscal 2013, the top line problem was ‘organic license growth’, which has been stagnant as enterprise technology spending has flat lined. However, the company is generating roughly $ 10 billion in free cash per year, all of which is being allocated on a share repurchase program; earnings per share have increased over the same period.

Another factor working in investors favor is Larry Ellison, the Oracle CEO is known for his impatience, and he is unlikely to keep the current management team in place if revenue growth does not return soon. One area of growth potential is cloud while is cloud solutions is not currently a large part of their business today (less than 1 percent of revenues), the company has been increasing talking up their cloud solutions lately.

This includes an enterprise-class cloud environment and family of cloud services designed specifically for the needs and requirements of government organizations called Government Cloud. This solution has been embraced by Government agencies as a way to implement their Cloud First Policy, which requires agencies to use computing instead of other solutions. According to CMSWire, ‘A quick look at what Oracle is offering shows that it dovetails nicely with the US federal government’s 2010 Cloud First policy.’

Operating margin is another positive for the company as it is approaching a three-year high of 50 percent. Based on these factors, analysts are expecting earnings per share to grow by 8 to 9 percent for fiscal 2014 and 2015 (between $ 2.89 and $ 3.16). Shares are currently trading roughly ten times earnings so the valuation, from a price to earning perspective, is hardly inflated.

For their part, Morningstar has said that the company’s shares have an intrinsic value of $ 39, with others have predicted $ 40 or more. However, it is unlikely that shares will reach anywhere near the heights they did during the dot.com bubble of the 1990’s, unless organic license revenue growth and cloud solutions take off.